Databricks to acquire serverless database startup Neon for USD 1 Billion

Databricks has signalled its intent to acquire serverless Postgres startup Neon in a deal reported to be valued at approximately USD 1 billion. Neon is a startup that offers a modern, flexible type of database service based on popular open-source technology called PostgreSQL.

Databricks intends to buy Neon to help its customers build and use the latest AI tools, specifically programs called AI Agents, which need speedy and adaptable databases to work effectively. For years, Databricks has been synonymous with the the data lakehouse, bridging the gap between data warehousing and data lakes to handle diverse data types and workloads. However, the rise of sophisticated AI agents – programs capable of performing complex tasks with minimal human intervention, from coding to email management – demands a new class of database infrastructure.

This is where Neon, founded in 2021 by a team of seasoned database engineers, enters the picture. Neon built a serverless PostgreSQL platform from the ground up, fundamentally re-architecting the storage layer to decouple compute and storage. This innovation allows for critical features that are a perfect fit for the AI agent paradigm: near-instantaneous database provisioning (under 500 milliseconds), elastic scaling that precisely matches usage, and powerful branching capabilities that enable AI agents to create isolated database instances for experimentation without disrupting live systems.

The acquisition of Neon is not an isolated event but rather the latest, significant maneuver in Databricks' aggressive expansion strategy. The company has been on an impressive M&A spree, strategically acquiring companies to bolster its platform and expertise in key areas of data and AI. In 2023, Databricks made waves with its USD 1.3 billion acquisition of MosaicML, a generative AI startup, significantly enhancing its capabilities in building and deploying large language models. This was followed in 2024 by the acquisition of data management startup Tabular for over USD 1 billion, aimed at strengthening its open data governance offerings. The Neon acquisition, also in the billion-dollar range, clearly demonstrates Databricks' commitment to owning critical components of the modern AI application stack, extending its reach from data processing and AI model development into the core transactional database layer.

These acquisitions are underpinned by robust financial health. Databricks, secured a staggering USD 62 billion valuation after its most recent funding round last year, which included USD 10 billion in equity financing and a USD 5.25 billion credit facility. This substantial capital gives Databricks the firepower to pursue strategic deals like Neon. Furthermore, the company is demonstrating strong growth, with projected annualised revenue expected to reach USD 2.4 billion by the midpoint of this year, representing a significant year-over-year increase.

While the Neon acquisition is subject to regulatory approvals, the intent is clear. Databricks is making a calculated, high-stakes bet on the future of AI agents and the infrastructure required to power them. As the industry eagerly awaits more details at the upcoming Data + AI Summit, the acquisition of Neon stands as a powerful testament to Databricks' ambition and its relentless pursuit of building the foundational layer for the next wave of data and AI innovation.